I had a similar issue. I tried a couple more times and it eventually found my phone, then it stalled halfway through the install. It bricked my phone. The kind folks at the Nokia store replaced it and told me to wait until they got the firmware upgrade in the store. I finally got it done yesterday and I'm much happier with it. Still a little slow when flipping open/closed, but it doesn't run out of memory as much when you use the built in browser.
If you are near a Nokia center, have them do it if you have had any kind of issues. It's not worth bricking your phone, even if you usually know what you are doing.
As for AOL IM, I've been using JonnyChat. Do a search to find it. It's been working wonderfully. It works over WiFi and it's free.